Tax Payment and its Administration

INTRODUCTION

The Kingdom of ESwatini is one the countries who aspire to attain First World status. Tax payment and its administration is the demonstration of such desire, although some income earners view it as a means of exploitation by the government. Tax payment is a contribution imposed by the Government on personal income earners, companies, investors, exporters and importers. Revenue realized from taxation is a major source of revenue to the government as it supposed to play a dynamic role in the rapid growth and development of the economy. A country's tax policies and systems are significantly associated with the business undertakings of that country (Bhatia, 2000).

According to (Bhatia, 2000), an economy that legislates favourable and progressive tax law and policies will positively raise successful and finance healthy business organisations. Once businesses flourish, the economy will also flourish, as there is no quicker way of stirring the affairs of an economy without the help of organizations that move goods, services, money and investments from those with surplus to those with deficit, those with marketable ideas/ output to those who need these ideas and products.

1.1 BACKGROUND OF THE STUDY

Taxation increases incentives for public contribution in the political process and generates pressure for more accountability, better governance, and improved efficiency in government spending. Taxation also creates incentives for governments to upgrade their institutions for tax collection and administration and to provide more public services (Moore, 2007).

The ESwatini tax system has undergone significant changes in recent years. The successive development plans to enhance revenue collection, including rationalizing the tax structure and rates, replacing the sales tax with value-added tax and modernization of tax administration system, (Ayoki 2017), have put importance on the accomplishment of self-reliance and actualization. The need for this national objective is because much is expected from individuals from the viewpoint of providing employment opportunities, self-reliance in basic food and material production, high per capita income, foreign exchange earnings and the production of industrial raw materials.

Rabushka, 2002, states that the Kingdom of ESwatini maintained a tax system that can best be described as a simplified version of the colonial tax system as it existed around 1920s and 1950s. The colonial tax system state that proprietors were authorized to impose levies on their subjects. Direct taxes, authorized by statutes enacted in colonial legislatures, included general property tax, typically combined with the poll tax, and a direct land tax in some instances. Tax rates varied with wealth. (Rabushka, 2002).

Since the major reforms of the income tax in 1975 and 2001, no major changes of the indirect taxes and tax administration system took place until recently. According to (Ayoki, 2017), the major reformation included the impact on collection of indirect taxes (especially VAT where On 1 April 2012, the Sales Tax was replaced by value added tax (VAT) at a standard rate of 14 percent and recently on 1 August 2018 (VAT) increased to 15 percent). In terms of aggregate revenues raised, The Kingdom of ESwatini did well until the late 1990s when the full effect of trade liberalization began to emerge. The recent reforms of the tax system have been triggered by five revolutionary events that have impacted the domestic economy (Ayoki 2017):

(i) A reduction in common external tariff rates due to trade liberalization.

(ii) The fiscal crisis of 2010–11.

(iii) The high volatility of the SACU revenue and the uncertain prospects for South African economy.

(iv) Rising budget deficit, aggravated by the collapse of the fiscal discipline.

(v) The increased pressure to maintain a prudent fiscal policy stance and strengthen Eswatini's resilience to shocks.

Small businesses are largely acknowledged as important drivers of economic success. They are a key ingredient in the ecology of firms in a healthy economy, as job creators, sales generators and a source of tax/fiscal revenue (Choongwe, 2014). In ESwatini the significance of small and medium business as a creator of jobs, particularly for those with low skills level, is widely accredited. The small, medium and micro-enterprises (SMEs) contribute 36.1% of the country's gross domestic product (GDP) and employ 60% of the workforce in the private sector. In the agriculture, construction and retail sectors, SMEs employ more than 80% of the total workforce (Ayoki, 2017). Over the past years, the growth in employment by SMEs has exceeded the growth in their contribution to GDP, highlighting the job creation potential of this sector of the economy. However there is a need to emphasize that the small business is still affected by the government fiscal policy taxation. This research work is of the intention to examine the impact of taxation on small and medium business and its administration in the Kingdom of ESwatini. Regulations and red tape are reported as one of the constraints to the expansion of businesses both in ESwatini and internationally. International research in this field shows that tax regulatory compliance cost are a significant portion of the total regulatory cost. Several other patterns emerged from the various local and international studies performed, among the most important being that tax compliance cost comprise a much larger proportion of total compliance costs for smaller firms. Additionally, various research has suggested that any effective approach to assist small and medium businesses requires both policy and administration model adjustment in order to be effective (Ayoki, 2017).

Regulations and tax policies are said to be one of the constraints to the expansion of businesses both in ESwatini and internationally. However, companies in ESwatini are liable to two types of taxes and these include as stated in the Swaziland Tax Guide of 2010:

1. Company tax - All companies are subject to tax at the flat rate of 30% on taxable income. Tax holidays are available, subject to approval of the Minister of Finance, for new business in the manufacturing sector, subject to one of two provisos:

(a) The industry is not already in existence in Swaziland or

(b) The enterprise is predominantly export driven.

The tax holiday is granted for five years of assessment commencing from the date of commercial production and taxable income is calculated subject to a formula. However, in line with the new tax regime, it is not expected that any new tax holiday will be granted. Additional tax concessions may be granted, at the discretion of the Minister of Finance, to new businesses which are considered to be beneficial to the national economy.

2. Value Added Tax (VAT) - VAT is charged at 15% on specialised services, and certain transactions, including the importation of goods and the sale of locally manufactured goods. A rate of 20% is applied to most alcohol and tobacco.

1.2 STATEMENT OF THE PROBLEM

Small and medium enterprises (Small businesses) form the primary mainstream of the world's economies (Terbia, 1978). In many government policies, small and medium enterprises are usually viewed and treated in the same light as large corporations. However, their size and nature makes them unique, as a result these unique qualities need to be considered. In levying of taxes for these enterprises, issues that need to considered are how these tax policies can be designed to bolster the growth of small businesses and most effective ways to administrate them. According to (Chukwu, 2016), the importance of small businesses as a mechanism of economic growth and development is often ignored in Nigeria. They are perceived as small establishments that have minimal effects on the state of the economy.

However, if a conductive environment is created for these small and medium businesses to grow through proper regulation, tax policies and administration, the SME sector has the highest propensity to transform our economy. In the same light, taxes are important for the government as they are the major source of funds for the government expenditure. Income obtained from taxation of individuals and businesses are used to run government as well as provide infrastructure such as good roads, water supply, hospitals, schools, electricity, etc., which are essential for the smooth running of these businesses that are mainly manufacturing companies and as such rely on these commodities to survive.

Tax burden is a major problem in ESwatini as many business organisations are no favoured by the tax systems, administration and policies in place. Some businesses are already collapsing because as at time the tax administration system is poor,the tax liability computation is based on estimates, records of many small business firms are incomplete and some miss out result to tax over charge. Some businesses are already collapsing, according to a study done by (Batemen, 2007) at Nigeria, while majority are still struggling to meet up with high tax rates to ensure their businesses still exist. According to a study conducted by Batemen (2007) at Nigeria, it was reported in a survey that 90% of business owners admitted that taxes were a huge constraints to their businesses, as they claim taxes are high and do not allow new businesses to cover up initial cost. Therefore, failure to have an effective tax administration system adversely affects the profitability of small scale businesses.

1.3 Purpose of the study

The purpose of the study is to establish the effects of tax administration on small and medium scale business enterprises in Mbabane.

1.4 Objectives of the study

To achieve the purpose of this research, the following are the objectives of the research:

1. To identify the impact of tax on SMEs growth in Mbabane.

2. To determine the perception of SMEs about tax system.

3. To determine if the tax-system affect turnover of SMEs.

4. To determine what measures could better align the tax system to SMEs' growth needs.

1.5 Research questions

1. How tax rate affects growth of small-scale business enterprise in the Mbabane?

2. Which policy is administered on small-scale business enterprise in Mbabane?

3. What are the types of tax that affect the growth of small-scale business enterprise in Mbabane?

1. 6 Scope of the study

The scope of this research covers a critical examination on the impact of tax policies on of small-medium scale business enterprises in ESwatini's economy particularly in the Mbabane. The research focusses on the challenges of tax policies and its administration in ESwatini and how it can affect traders, and other forms of sole proprietorship businesses in the Kingdom of ESwatini.

1.7 SIGNIFICANCE OF THE STUDY

The findings of the study will give a clear insight into the various ways in which tax policies in ESwatini can be executed efficiently to still small-medium businesses and how some taxation policies in ESwatini can be tackled. The study also gives a clear insight into the various causes of why small-medium businesses fail in ESwatini as well as the challenges of the tax policies in ESwatini. The findings and recommendations of the researcher will help in building a strong and better tax policy system in Eswatini, if taken seriously by government and the general public. The challenges of taxation in ESwatini are outlined in-order for drastic measures to be taken to tackle these challenges and meet the prospects of the general public so that revenue from tax policy to the government can be increased.

This research is of academic significance to the extent that it will serve for better understanding of the impact of taxation on small-medium business in a developing economy like the Kingdom of ESwatini.

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